Dayton prevailed legally, but loss on LGA and K-12 may hurt his position

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As June began to slip away and it grew increasingly likely that the Minnesota budget impasse was headed for a government shutdown, talks around the Capitol began to revolve around the bargaining leverage each side would hold as the full attention of Minnesotans turned to its dysfunctional Capitol.

Ramsey County Judge Kathleen Gearin shed some light on that dynamic on Wednesday, when she released her ruling on the state services that would be deemed “essential” if Gov. Mark Dayton and the GOP-led Legislature did not find a solution to the deadlock by July 1. Now, with the decision in hand and a shutdown under way, there is some clarity as to who holds the upper hand and who won and lost in the Gearin decision.

In short: It’s a mixed bag for everyone.

Gearin’s decision rejected the “shutdown lite” argument advanced by Attorney General Lori Swanson and sided mostly with Dayton’s more minimalist definition of essential services in a shutdown. It also tossed aside a strict-constructionist argument that no government spending at all could occur once government was shuttered, a position advanced in a suit by four GOP senators.

But Gearin’s order overrode Dayton’s shutdown terms on two key spending provisions involving July payments to school districts and to units of local government. (This was money from statutory appropriations that did not require 2011 legislative action.) Dayton left those payments out of his original shutdown plan, omissions that lent credence to claims — many coming from GOP critics — that the governor was seeking a harsh shutdown in an attempt push Republicans to deal on a budget that includes more revenue.

Observers say the continued payments to school districts and local governments may neutralize two of the most significant pressure points in the Dayton administration’s proposed shutdown terms; another, involving the withholding of payments to health care providers, was mooted when the governor’s office bowed to pressures from providers and withdrew the provision.

With the LGA and K-12 payments scheduled to go forward as planned, some wonder whether Gearin’s shutdown blueprint will be harsh enough to spur compromise at the Capitol. “It cuts both ways,” said GOP attorney Fritz Knaak. “Immediately, the ruling takes the pressure off the governor and the key folks who matter to him. But if most core functions are going forward, especially LGA and school payments, the legislators could just go home and wait until September.”

Political winners and losers

Within hours of Gearin’s long-awaited order, both Dayton and Swanson were claiming victory. While the ruling didn’t accept the attorney general’s broader view, Swanson said she was happy with Gearin’s conclusion. “We sought a declaration that the courts make the ultimate determination concerning the constitutional rights of our citizens and the core functions of state government in the event of a shutdown,” Swanson said in a statement. “In both cases, the courts did so.”

Dayton made even stronger claims of success. In a statement released by his office, Dayton said Gearin had arrived “at the same middle ground” as he did, and “essentially agreed with my list of critical services that must continue.” Special counsel David Lillehaug, who is representing Dayton, echoed the governor’s words at a Capitol news conference Wednesday afternoon. He praised Gearin for being practical and fair, and used the word “minimal” to describe the differences between her ruling and the governor’s petition.

But when asked about Gearin’s move to continue funding school districts and local governments, Lillehaug was less exultant. He said he wasn’t prepared to comment on those two sections of the ruling, as he had yet to review the order in its entirety.

On its face, the governor is the winner in the ruling, DFL lobbyist and attorney Ted Grindal said. “The governor, on a more philosophical front, got a bigger win [by] having a narrower rather than a broader shutdown,” he said. “Basically, the governor got a lot more of what we wanted than he didn’t want, and the attorney general lost some things.”

As Knaak sees it, the governor may have more points on his scorecard than the attorney general, but he lost key leverage over the GOP majorities by virtue of the continued school and LGA payments.

Dayton has worked the LGA angle all session, holding the aid payments harmless in his own budget — a move widely taken as an effort to drive a wedge in the GOP caucuses, many of whose rural members come from areas heavily dependent on the aid. “LGA payments would have been one of the things that would have been a source of a lot of pressure for Republicans,” Knaak said, “and that’s gone. So when push comes to shove on the politics of this thing, there is a lot of pressure that’s been taken off of this.”

DFL Rep. Ryan Winkler agrees that some pressure is lifted by the LGA and K-12 payment orders, but generally, he said, shutdowns are hardest on the legislators — and there are still many areas of state government that will not be funded under this plan.

“When you have the state parks and the zoo shut down,” he said, “there will be irritated consumers. When you have the licensing board shut down, you will have irritated drivers. There will be plenty of pressures, and there’s no question that Minnesotans will be angry and contemptuous of all elected officials. But it doesn’t change the basic fact that the governor is not on the ballot until 2014 and legislators are the ones that are out in their districts.”

Pressure points remain

As a shutdown approached Thursday, it was clear that significant pressure points remained. From horse racing and nonprofits to transportation contractors and building inspectors, the pain of the shutdown will be felt statewide.

“Some of our worst fears are coming true,” Jeannie Fox, deputy director of public policy at the Minnesota Council of Nonprofits, said Thursday after leaving a rally at the Capitol. “The longer it goes on, the more devastating it will be.”

For nonprofits, the shutdown means a halt to many of the state-funded services they provide. State dollars for non-federal child care services will be discontinued, for example, along with many other aspects of the social safety net that are paid solely by state funds. In her ruling, Gearin allowed that this could cause “extreme hardship.”

“The absence of service of our communities provided by nonprofits and also basic services from government, that will be noticed,” Fox said. “The question is, how much will the public tolerate?”

In three separate court jurisdictions Thursday, lawyers for Canterbury Park and Running Aces were looking to stave off their own ill effects from a shutdown. They are shuttered because the state’s Racing Commission is not being kept operational. Lillehaug and Solicitor General Alan Gilbert went to Scott County for a hearing on the matter early Thursday, and those claims are headed back to Gearin’s court for a future hearing, along with a similar claim from the Minnesota Zoo.

To hear the racetracks tell it, closure would mean the immediate loss of thousands of jobs, not to mention the possibility that horse owners would pick up and move elsewhere.

Perhaps even more significant, though, would be the effect of a shutdown on transportation projects, contracts and state building inspectors, all of which grind to a halt during the shutdown. Thousands of jobs are expected to be lost during the shutdown, Minnesota Association of General Contractors Chief Executive Officer David Semerad says, and the loss of inspectors will affect everything from residential remodeling projects to commercial and industrial construction.

“These folks have been laid off all winter long,” Semerad said. “We’re just beginning to get these projects back on line. Now all of a sudden we have to lay them off.”

Special master a wild card factor

One remaining unknown involves the role of former Minnesota Supreme Court Chief Justice Kathleen Blatz, who was appointed by Gearin as special master over shutdown proceedings. By most accounts, her role will be much narrower than retired judge Ed Stringer’s was in 2005.

In 2005, Stringer’s role was to deem what was and wasn’t essential among unfunded state services; this time, according to attorneys close to the shutdown case, Blatz is expected only to resolve disputes over what must be funded to execute the essential roles Gearin has spelled out. According to Cort Holten, an attorney for Running Aces, “Much of [the special master proceedings are] going to be people trying to get designated as part of that category that was already deemed essential.”